Tax fight begins in the Senate

TAX FIGHT BEGINS IN THE SENATE — House Ways and Means is expected to clear H.R. 1 (115) on Thursday as the Senate Finance Committee unveils its version of the tax cut legislation which may look quite different. POLITICO’s Seung Min Kim and Josh Dawsey scooped some of the differences here including no full repeal of the estate tax, an effort meant to bring along moderate Republicans like Susan Collins of Maine.

Much like the rollout on the House side, GOP leaders will brief the caucus Thursday morning before publicly releasing their proposal. The Senate bill is also expected to fully cut the state and local deduction unlike the House side. Eventually all of this will have to be hashed out in a conference committee, assuming both chambers can pass their respective tax bills.

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So just like on the House side, what’s in the Senate Finance bill matters quite a bit. But it’s just the beginning of the saga. Pretty much everything is negotiable over the next month until the final piece of sausage gets produced in conference. That’s when things will get wild just as they did with the frenetic Dodd-Frank conference in 2010 and most other big pieces of legislation.

SEARCH FOR VOTES IN THE HOUSE — POLITICO’s Rachael Bade: “House GOP leaders are using a mix of behind-the-scenes cajoling and warnings about losing the majority to corral their oft-fractured conference on tax reform.

“House Majority Whip Steve Scalise’s team has been pulling district-by-district data to prove to skeptical lawmakers from high-tax states that their constituents will see a tax cut under the plan. …. But leadership sources say the toughest part of the whipping effort has yet to begin. That's because on Thursday, the Senate will release its own tax bill that is expected to upend some of the House's careful negotiating” Read more.

MM SIDEBAR — There are a couple of political threads in play here. It’s probably true that Republicans need to have SOMETHING to point to as a legislative accomplishment to take to voters in 2018. They can’t go zero for two on health care and taxes. But it’s not clear at all that what they actually DO will be massively popular with voters.

The centerpiece of this tax effort is slashing rates on corporations. That’s a reasonable idea in many respects but it’s not a politically popular one and won’t be until its promised impact winds up in people’s bank accounts.

Getting rid of the estate tax and the AMT and giving a lower pass-through rate to passive owners of businesses while taking away popular tax credits like those for adoption and student loans is also not super popular. Suburban voters may wind up not liking whatever gets done on state and local tax deductions.

It’s true most individual tax payers will see some tax cuts, at least in the first few years under the bill. But plenty, especially itemizers, could see tax hikes in 2027 and beyond, per the JCT analysis. And the corporate side of the plan COULD boost growth. But that could take a while to work through the system, leaving it a non-factor in 2018. Republicans have to pass a bill and make people BELIEVE it will be great for them even though it might not be.

TRUMP MUDDIES THE WATERS — Per WSJ’s Eli Stokols, Trump told Democratic senators that they were going to like the Senate version of the bill “a whole lot more,” which is a weird message to send when the House is trying to get its bill done.

FIRST LOOK: PRIVATE EQUITY DONATIONS RISE — Via a Center for Media and Democracy report out this a.m.: “In the 2016 federal elections, 147 private equity firms and the individuals in them gave $92 million to federal candidates and committees …

“That’s more than double the $39 million the same group of donors gave in the 2012 elections. The amount only represents private equity, not firms primarily involved in venture capital or those running hedge funds” Read more.

JUSTICE PUSHES AT&T AND TIME WARNER — POLITICO’s Steven Overly: “The Justice Department is pushing AT&T and Time Warner to offload unspecified parts of their companies to win the government's approval of their $85 billion merger, according to sources … DOJ has not said what ‘structural remedies’ it expects the companies to make, the sources said, though the request is being interpreted as pressure to sell off Time Warner-owned CNN, a frequent target of President Donald Trump's anger.

"The only reason you would divest CNN would be to kowtow to the president because he doesn't like the coverage,’ one source said. ‘It would send a chilling message to every news organization in the country.’ … Questions about the fate of CNN have loomed for months over the Trump administration’s review of the merger, especially given the president’s frequent Twitter attacks on the network”

LAWMAKERS EXPRESS CONCERN — “Even critics of AT&T’s proposed mega-merger with Time Warner expressed alarm Wednesday at allegations that President Donald Trump's Justice Department is intervening in the deal for political reasons — namely his oft-expressed complaints about CNN.”

AT&T CEO Randal Stephenson rejected the idea that he ever offered to sell CNN and said he has “no intention of doing so.” Read more.

HOUSE CAVES ON EXCISE TAX — POLITICO’s Brian Faler: “Under pressure from businesses, House Republicans have gutted a plan to crack down on corporate tax avoidance — which is now helping put their broader tax-rewrite plan over budget. They've scaled back the proposal — opposed by the influential Koch brothers, as well as scores of large corporations — so much that the provision is now projected to raise $7 billion over the next decade, which is 95 percent less than in the original plan.

“Some companies would likely pay nothing under the revised plan. It's a big reason why their tax plan, H.R. 1 (115), now doesn't fit within their budget, which allows them to cut taxes by $1.5 trillion. They're now $146 billion over budget, according to Ed Lorenzen, a budget expert at the nonpartisan Committee for a Responsible Federal Budget” Read more.

TRUMP WANTS NO CORP RATE DELAY — POLITICO’s Cristiano Lima: “Treasury Secretary Steven Mnuchin said Wednesday the Trump administration's ‘strong preference’ would be to implement corporate tax cuts next year, even though Senate Republicans are considering delaying the change. ‘Our strong preference is that the corporate tax rate starts next year,’ Mnuchin said during an interview on Bloomberg TV.

“Senate Republicans are expected to unveil their proposal to reform the tax code on Thursday, a plan that may differ significantly from the House version. Under the House plan, the corporate tax rate would drop from 35 percent to 20 percent, a move that could take effect next year. Some Republican senators are looking to delay the cuts to 2019 to limit the bill's impact on the national debt” Read more.

ICAHN SUBPOENAED — POLITICO’s Eric Wolff: “The U.S. Attorney for the Southern District of New York has subpoenaed former White House adviser Carl Icahn for information about his push to change the federal biofuels program, according to a SEC filing issued by his company.

“Icahn Enterprises L.P. says in the Nov. 3 10-Q filing that the U.S. attorney recently contacted it ‘seeking production of information pertaining to our and Mr. Icahn’s activities relating to the Renewable Fuels Standard and Mr. Icahn’s role as an advisor to the President.’

“Trump named his longtime billionaire friend as an unpaid ‘Special Advisor to the president for Regulatory Reform’ in December, though Icahn resigned that position in August after drawing criticism that his efforts to change the RFS would benefit CVR Energy, an oil refining company he owns” Read more.

OUR CRUMMY TAX SYSTEM — New Bloomberg Businessweek cover by the great Justin Fox looks at “The Long, Absurd History of U.S. Taxes — And Where We Go From Here” Story live at 6 a.m.

Carl Icahn, subpoenaed. | AP Photo

GOOD THURSDAY MORNING — Greetings from Dallas, where MM is hosting a regional Chamber of Commerce event on the economic outlook for 2016 and also touring AT&T Stadium that is evidently home to some football team.

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THIS MORNING ON POLITICO PRO FINANCIAL SERVICES – Victoria Guida on Acting Comptroller of the Currency Keith Noreika’s push to banks own non-financial companies, or vice versa, saying there is often no clear purpose for maintaining restrictions. To get Morning Money every day before 6 a.m., please contact Pro Services at (703) 341-4600 or info@politicopro.com.

DRIVING THE DAY — Trump continues his visit to China … Another huge day for tax cuts with action expected in House Ways & Means and a proposal expected from Senate Finance … JCT is expected to release a dynamic score of the House bill

TRUMP MEETS XI — Reuters/Beijing: “U.S. President Donald Trump told Chinese President Xi Jinping on Thursday that he believes, like Xi, that a solution can be found to the North Korean nuclear issue, a day after warning Pyongyang of the grave danger of developing nuclear weapons. Speaking alongside Xi in the Chinese capital, Trump also said it was disappointing that his predecessors had let the bilateral trade balance get out of kilter.

“‘But we will make it fair and it will be tremendous for both of us,’ Trump said, expressing respect for Xi. Trump is pressing China to tighten the screws further on North Korea and its development of nuclear weapons. At least modest progress is hoped for, although there are no immediate signs of a major breakthrough, a U.S. official said earlier on Thursday.” Read more.

GOP: PASS TAX CUTS OR DIE— POLITICO’s Kyle Cheney and Seung Min Kim: “Top Republicans in Congress had an urgent message to lawmakers after the party’s drubbing in Tuesday’s elections: Pass tax reform or we’re toast in 2018. ‘I think it simply means we’ve got to deliver,’ Speaker Paul Ryan said Wednesday. And given the party’s epic collapse on repealing Obamacare earlier this year, there’s a pervasive anxiety among lawmakers that they’d better do something big before voters sour on them for good.

“‘Oh yeah. If we face-plant on health care and taxes,’ said Rep. Dave Brat (R-Va.), ‘I don’t want to see it.’ But amid the exhortations to be productive and notch a win, there’s a creeping concern that vulnerable House Republicans might also take another lesson from Tuesday’s Democratic romp: tying yourself too closely to a Trump-branded tax reform bill that ends popular tax breaks could be an unpalatable risk” Read more.

HITTING HEDGE FUNDS? NOT SO MUCH — BI’s Rachael Levy: “An amendment to the Republican tax bill touted as a blow to hedge-fund managers isn't going to affect most of them. … [C]arried interest actually doesn't apply to most hedge funds. … The majority — 62 percent — hold their investments for less than one year … And only a relatively small number of hedge funds would be caught up in Brady's amendment if passed. Only 15% report holdings for more than two years” Read more.

FLY AROUND

MOVEMENT ON OTTING IN THE SENATE — POLITICO’s Victoria Guida: “Senate leadership sent the nomination of Joseph Otting as comptroller of the currency to members on Tuesday to determine whether he could move under unanimous consent, according to a Senate aide. Unsurprisingly, some Democratic senators objected, despite their distaste for the acting comptroller, Keith Noreika.

“‘Mr. Otting may be buddies with the Treasury Secretary from their days leading OneWest bank - a notorious foreclosure mill that booted thousands of families out of their homes, illegally foreclosed on dozens of service members, and forked over $89 million for defrauding the government on his watch - but he is highly unqualified for this job,’ said Sens. Elizabeth Warren, Jeff Merkley, Catherine Cortez Masto, Brian Schatz, and Chris Van Hollen in a joint statement.

VOLCKER OVERHAUL COMING IN SPRING? — More from Victoria: “Acting Comptroller of the Currency Keith Noreika said on Wednesday that agencies could put out a proposal to reform the Volcker rule in the spring of next year. ‘Spring is probably what I would think is achievable,’ Noreika told reporters on the sidelines of the Clearing House's annual conference. ‘I don't think we've set any firm deadline yet, but that's sort of what I would expect.’

“The five financial agencies with jurisdiction over the rule, which bans banks from making risky short-term bets and from owning certain funds, have been working together in an effort to simplify it, under the direction of the Financial Stability Oversight Council. Noreika said he would like to see whether regulators could exempt small banks from the rule without changing the underlying law.”

TRUMP SHOULD GIVE THANKS, NOT TAKE CREDIT, FOR ECONOMY — WSJ’s Greg Ip: “In the year since … Trump was elected president, the economy and markets have been on a roll. Stocks have set one record after another, unemployment has dropped sharply and the U.S. enjoyed its strongest six months of economic growth since 2014. Mr. Trump thinks he knows why: ‘The reason our stock market is so successful is because of me,’ he declared earlier this week.

“But Mr. Trump should be giving thanks, not taking credit. The entire global economy is picking up steam, and foreign stocks are outperforming American markets. This suggests the U.S.’s good fortune is due less to Mr. Trump’s presence than to a broader, global trend. Years of highly stimulative monetary policies by central banks have finally overcome various postcrisis headwinds holding back growth.” Read more.

ROSS TO SELL STAKE IN FIRM WITH RUSSIAN TIES — AP: “Commerce Secretary Wilbur Ross plans to completely divest from a shipping company that counts a Russian gas producer with ties to the Kremlin among its major customers.

“A commerce department spokesman says Ross plans to sell all his shares of Navigator Holdings. That company ships products from Sibur, a Russian gas producer whose owners include two Russian oligarchs close to President Vladimir Putin and a businessman believed to be Putin’s son in law.” Read more.

“Even before the polls closed Tuesday, concern had been mounting among the bill’s supporters that a House version of the plan would falter in the Senate. And hanging the background is the flattest yield curve in 10 years, threatening to erode already weak interest income at the nation’s largest lenders.” Read more.

NEW AT FINCEN — Per release: “The U.S. Department of the Treasury announced Kenneth A. Blanco … as Director of the Financial Crimes Enforcement Network (FinCEN), a bureau in Treasury’s Office of Terrorism and Financial Intelligence (TFI)…. Mr. Blanco joins Treasury after serving as the Acting Assistant Attorney General of the Criminal Division at the United States Department of Justice”

REBUTTING NOREIKA — Via ICBA’s Cam Fine: “Mixing banking and commerce wasn’t a good idea in 1929, 1999, 2006 and 2009 — and it’s still not a good idea today.” Read more.

NOREIKA ON LEVERAGED LENDING — WSJ’s Ryan Tracy: “A senior U.S. regulator criticized his predecessor’s crackdown on big banks’ lending to heavily indebted companies, a shift in tone after a yearslong battle over lending standards. The comments by … Noreika … were the first by a senior U.S. official since federal standards for so-called leveraged lending were thrown into legal limbo by a government auditor’s ruling in October.

“Regulators’ standards on leveraged lending ‘shouldn’t be binding on anyone,’ Mr. Noreika said in a Wednesday interview, referring to a 2013 guidance document. His predecessor, former Comptroller Thomas Curry, enforced those standards aggressively.”

NEW FROM WELLS — Per release out Thursday from Wells Fargo: “In honor of Veterans Day, Wells Fargo announces that it has surpassed more than $100 million in donations since 2012 to support military service members, veterans and their families.

“This includes donating more than 350 homes valued at more than $55 million to veterans in all 50 states, hiring more than 7,000 veterans and donating more than $47 million to military and veteran-related nonprofits” Read more.

About The Author

Ben White is POLITICO Pro's chief economic correspondent and author of the “Morning Money” column covering the nexus of finance and public policy.

Prior to joining POLITICO in the fall of 2009, Mr. White served as a Wall Street reporter for the New York Times, where he shared a Society of Business Editors and Writers award for breaking news coverage of the financial crisis.

From 2005 to 2007, White was Wall Street correspondent and U.S. Banking Editor at the Financial Times.

White worked at the Washington Post for nine years before joining the FT. He served as national political researcher and research assistant to columnist David S. Broder and later as Wall Street correspondent.

White, a 1994 graduate of Kenyon College, has two sons and lives in New York City.

About The Author

Aubree Eliza Weaver is a Web producer for POLITICO Pro. She graduated from Le Moyne College in her hometown of Syracuse, N.Y., where she was the editor-in-chief of her school’s newspaper, The Dolphin; co-hosted a political segment on the school’s news station, LCTV; and worked as a photography assistant in the Visual Arts department. As a student, Weaver interned with various communications organizations, including the publicity department of Regnery Publishing and serving as a news broadcast intern at Time Warner Cable’s Syracuse affiliate, YNN.

Immediately following her graduation in May 2013, Weaver moved to D.C. to work as a summer program adviser for The Fund for American Studies’ Institute on Political Journalism, an educational nonprofit that offers courses, internships, lecture series and other opportunities for college students and recent grads. She was a student in the program in the summer of 2011, when she first fell in love with D.C.

In her free time, Weaver loves to read and write (as all journalists do), play guitar until her fingers are numb, drink more coffee than she’d care to admit, and spend time with her family.